SEC Rule A Bittersweet Victory For Whistleblower Advocates

Jordan Thomas was quoted in a Sept. 24, 2020 Law360 article by Al Barbarino about new changes to the rules of the SEC whistleblower program. The article discussed the differing opinions and representations about the new rules, which are presented as a mixed bag. For whistleblower advocates, one supposed victory was that a proposed rule was scrapped that would have provided the SEC with discretion to reduce awards in cases resulting in sanctions of $100 million or more. However, the SEC contended upon adoption of the new rules that it already had such discretion. The SEC’s position seems debatable – and in fact a practitioner quoted in the article does debate it – but the uncertainty introduced for prospective whistleblowers may scare some away.

And this is the point emphasized in the article by Jordan. Because of the uncertainty around potential award size, as well as a new, ambiguous rule about non-insider whistleblower tips (allowing the SEC to essentially decide ex post facto that reported wrongdoing could have been discovered by anyone), “there will be some significant cases that will not be brought to the Commission because whistleblowers will be unwilling to take that risk,” Jordan said.

It is not clear whether the SEC has ever used the discretion it claims to reduce an award. The debate over this is probably just getting started.